Spread free months and one-time concessions across the whole lease to compute the true average monthly rent (net effective rent), for a fair comparison of different listings.
Input Data
Results
At a glance:Net effective rent is the average monthly rent after allocating free months and one-time concessions across the entire lease term.
Formula
paidMonths = leaseMonths − freeMonths
totalPaid = grossRent × paidMonths − cashConcession
netEffectiveMonthly = totalPaid / leaseMonths
monthlySavings = grossRent − netEffectiveMonthly
totalConcession = grossRent × freeMonths + cashConcession
$$\\text{NER} = \\dfrac{\\text{Gross Rent} \\times n - (f \\times \\text{Gross Rent}) - C}{n}$$How to Use
- Enter the gross monthly rent and lease term.
- Enter the free months and any one-time concession.
- Review the net effective rent, monthly savings, and total concession.
FAQ
What is the difference between net effective rent and face rent?
Face rent (gross rent) is the sticker rent charged in the months you actually pay; net effective rent spreads the free-rent months and one-time concessions across the whole lease term, giving the average true monthly cost. The more concessions there are, the lower the net effective rent sits below the face rent.
Which figure should I use for budgeting?
Budget your day-to-day cash flow on the face rent, because in the non-free months you must pay the full sticker rent. Net effective rent is mainly used to compare listings with different concession structures, or to assess the value-for-money of the whole lease — not for monthly cash-flow management.
Will the net effective rent hold after renewal?
Usually not. Free-rent and similar concessions typically apply only to the first lease term; on renewal the rent is normally renegotiated on the basis of face rent unless fresh concessions are agreed. So the attractive low net effective rent is often limited to the initial term.
Why would a landlord offer free rent instead of just lowering the face rent?
This is common in leasing markets, especially for grade-A offices and shops, for several practical reasons. First, keeping a higher 'face rent' (book rent) helps preserve the property's 'valuation' and 'asset record' — when the property is valued, refinanced or later sold, the book rent level is an important reference; granting rent-free periods rather than cutting face rent lets the landlord give a real benefit while keeping the contractual nominal rent looking firm. Second, rent-free periods are usually limited to the first term and are one-off; cutting the face rent would pull down the entire lease (and even the renewal benchmark), lowering the landlord's future starting point for increases — rent-free periods are more 'controllable' and do not affect long-term rental value. Third, rent-free periods suit the tenant's fitting-out and move-in period: a new tenant often needs time to renovate before operating, and one or two free months fairly cover that unused period for both sides. Fourth, in a soft market with ample supply, landlords prefer to attract tenants with rent-free periods and fitting-out grants rather than openly cutting face rent, to avoid creating a downward expectation of the property's rental value. For tenants, the takeaway is not to be put off by a higher face rent nor dazzled by free rent — convert everything to net effective rent (NER) for a fair comparison, and remember the concession usually does not apply on renewal.
How should one-time concessions (such as a fitting-out grant) be counted in net effective rent?
A one-time concession is a lump-sum benefit the landlord gives that is not deducted monthly — most commonly a 'fitting-out allowance' or a 'signing cash rebate'. To include it in net effective rent (NER), spread that one-off amount across the whole lease term, just like the free-rent period. Specifically: NER = (gross rent × lease months − free months × gross rent − total one-time concession) ÷ lease months. In other words, first work out the total amount you actually pay over the lease (gross rent total, less the free-rent value, less the one-time concession), then divide by the lease months to get the average true monthly cost. For example, gross rent HK$30,000, lease 24 months, 1 free month, plus a fitting-out grant of HK$60,000: total paid = 30,000 × 24 − 1 × 30,000 − 60,000 = HK$630,000, NER = 630,000 ÷ 24 = HK$26,250. This unifies two different forms of concession into a comparable monthly cost. A few notes: the one-time concession must be definite and clearly valued to count; if it is conditional (e.g. tied to completing specified renovations or staying for a minimum term), assess whether you can actually obtain it; NER is an average for comparison, while your actual cash flow is face rent upfront and the grant received separately, so budget by the real timing of receipts and payments; and this calculator's 'one-time concession' field is exactly where you enter such lump sums, which are then automatically spread and reflected in the NER.
Content review: Calculatorism Finance Team. Results are for reference only; please refer to the relevant authorities for the official figures.